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FRC notes of the discussion forum on Strategic Report Exposure Draft

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31 Oct 2013

The Financial Reporting Council (FRC) has today published the notes from a recent discussion forum held on their Exposure Draft: Guidance on the Strategic Report.

The non-mandatory guidance has been prepared to assist directors of listed companies to apply the Strategic Report requirements set out in The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the “narrative reporting regulations”).  The guidance has been developed in response to a request from the Department for Business, Innovation and Skills (BIS) and is intended “to encourage preparers to consider how the Strategic Report fits within the annual report as a whole and help enhance the quality of narrative reporting more generally”.  

The discussion forum was held on 22 October 2013 and included an overview of the regulations by a member of The Department for Business, Innovation and Skills (BIS) and an outline of the FRC’s draft guidance by a member of the FRC.  

The discussions, with participants, centred on a number of areas including: 

  • Materiality – how materiality could be applied to the Strategic Report.
  • Role of the Conduct Committee – The role of the Conduct Committee especially whether they would be scrutinising areas that were considered “material” and hence were included by companies in their strategic reports.
  • Business model, risks and strategy – reporting of business model, risks and strategy and risk reporting for dual listed companies.
  • ‘Core and supplementary’ approach – whether all areas of the strategic report are required to be disclosed in the same place or can be included by cross reference if included elsewhere (but there would still be a requirement to ensure that the strategic report is “fair, balanced and understandable”).
  • Summary financial statements – the option for a company to send its members, in certain circumstances, the strategic report with supplementary material rather than the annual report.  This replaces the option to provide summary financial statements which participants “considered to be a helpful method of communicating with shareholders”.

On the subject of materiality, it was discussed that “a possible rule of thumb for the application of materiality” could be whether the omission of the information would influence an investor’s decision to invest in the company.  It was also considered that companies would be able to “experiment” with disclosures as “the current framework does provide sufficient flexibility to permit creativity”. 

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